A frenzy is under way to determine just how – and how much – the federal government’s strategy for economic recovery from the COVID-19 shutdown will be shaped by its climate change agenda.
It’s a free-for-all that Justin Trudeau’s Liberals have encouraged. Earlier this spring, they let it be known that several cabinet members not leading day-to-day pandemic response – including Environment Minister Jonathan Wilkinson, Infrastructure Minister Catherine McKenna and Heritage Minister Steven Guilbeault – were doing early work on a green stimulus package.
Environmental groups and businesses were given the impression, by those ministers or other officials, that they should get proposals in by May – ideally with metrics for how many jobs and greenhouse gas emissions reductions those initiatives would produce. That way, the government could assess them in time for a summer rollout of plans to reignite the economy and help make it more sustainable.
Ideas have poured in, and some of them have gained momentum. They range from relatively straightforward projects, such as widespread building retrofits and installation of electric-vehicle (EV) charging stations, to investment in hydrogen and other clean-technology sectors in which Canada could have competitive advantage, to working with provinces to improve electricity grids and with cities to reinvent public spaces.
The Liberals are now trying to dampen expectations for how soon they’ll settle on such policies. Their message is that, at a stage of the COVID-19 pandemic when it’s still not clear when the economy will truly reopen, they’re still focused on relief policies to get people and businesses through shutdowns, rather than recovery plans to shape the economy on the other side.
But as the Liberals sort through their green-stimulus options in the months to come, they will nevertheless have to make enormous decisions quickly. They will have to balance the usual short-term imperatives of stimulus spending – getting people back to work and reigniting consumer spending – with seizing an unexpected chance to fundamentally reshape the economy after an unprecedented shutdown.
And the government will do so knowing that this will be its last opportunity to spend big money on the transition to a low-carbon future that was central to the mandate Mr. Trudeau won from voters last year. The prime minister is increasingly framing green stimulus not just as a moral responsibility, but a necessity for economic competitiveness during a period of restraint that undoubtedly be required after massive deficits accumulated during the pandemic response.
"They’re not going to get to do this again,” says Stewart Elgie, the director of the University of Ottawa’s environment institute and chair of the Smart Prosperity Institute. He says that failure to make the right investments now will lead to regret a decade from now about Canada’s “ability to compete in a changing world.”
Based on recent conversations with proponents lobbying or advocating for various green-stimulus proposals, as well as with government officials, there is likely to be some disagreement within the Liberals’ cabinet on the extent to which green stimulus should be prioritized.
Some ministers, notably Deputy Prime Minister Chrystia Freeland, whose handling of intergovernmental affairs includes liaising with oil-reliant Alberta, are said to be concerned that great focus on emissions reduction could cause a backlash among Canadians with more immediate economic needs.
Matters are further complicated by uncertainty about how much infrastructure investment, the most common form of stimulus spending and most obvious way it could be used to reduce emissions from transportation and other major sources, will be warranted by the rare economic crisis to cost more jobs in the service industry than sectors such as manufacturing and construction.
Recent government decisions on even short-term relief, however, make clear Mr. Trudeau’s inclination to link any government spending now to positioning Canada to get ahead in a world in which most countries will be aiming to reduce their carbon footprint. When a loan program for large companies struggling to get through the shutdown was announced last week, for instance, disclosure of climate-related risks was included as an eligibility requirement.
His government has also recently put in place, at the highest levels, people who consider climate policy and investment central to future competitiveness. They include newly appointed Bank of Canada Governor Tiff Macklem, who last year chaired a federal panel on sustainable finance. Michael Sabia, who stepped down as head of Quebec’s pension fund in February after making it a leader in prioritizing low-carbon investing, was recently appointed as chair of the federal Infrastructure Bank, which is expected to play a role in stimulus efforts by leveraging public dollars to attract private investment. Those appointments have contributed to rising expectations among advocates of aggressive investment in a transition to a clean economy in the months ahead.
So, too, has the possibility that more intervention in the economy than previously anticipated will be deemed necessary by the government because of the pandemic diminishing the impact of other measures.
Until a couple of months ago, Mr. Trudeau’s climate strategy revolved largely around regulation and price signals, meant to set the conditions for industrial and behavioural change. His government has not abandoned that approach, and it pressed forward with last month’s increase to the national carbon price (and the accompanying rebate). But the Liberals are delaying some measures, partly because layering on more costs would be politically tone-deaf under current circumstances. That includes the planned publication this spring of regulations for the new Clean Fuel Standard, a complex policy that would require companies that produce or import fuels that reduce the emissions from their domestic usage, at some expense to industry and (passed down) to consumers.
Even if those policies go ahead, market-based measures conceived before COVID-19 may not work in markets that have been massively disrupted. The recent crash in oil prices, for instance, means that the extra cost of the carbon price (currently about seven cents a litre) might have less impact in influencing consumers to reduce fossil fuel use in vehicles and homes. And various penalties and incentives designed to encourage more sustainable practices by large industry will be less relevant if businesses’ entire cost and revenue structures are upended. For the current year, emissions are declining anyway, because of vastly diminished economic activity and travel. But the economic disruption could push back changes – drivers switching to EVs, manufacturers investing in cleaner processes – that would lead to sustained emissions reductions.
By some accounts, a shift from government policies that set broad conditions to more direct spending on reducing emissions was needed even without the pandemic. Ivey Foundation president Bruce Lourie suggests that carbon pricing, for which he was a prominent advocate, was a way to raise awareness of the need for behavioural change, but that governments around the world also recognized that more interventionist industrial policies would soon be needed.
Still, few proponents anticipated that there would be such a sudden, make-or-break an opportunity for that intervention in one big package.
Even so, the Liberals also have plenty of reasons, beyond possible cabinet disagreements, for moving more slowly than they originally signalled. They now seem to recognize that the health crisis will last longer than they initially anticipated, and the recovery is further away.
It’s also hard to design policies that meet a myriad of economic objectives when it’s unclear which sectors will be slowest to recover, how many people will return to busy workplaces or public transit, and how long international trade will be affected.
The government doesn’t know what the public mood will be like months from now, either – whether collective action to contain COVID-19 will make Canadians more inclined toward collective action to fight climate change or more weary of government calls to action. Also unclear is how much appetite there will be for large-scale stimulus compared with concern about deficits.
But most insiders still expect a rollout of planned recovery spending to begin by fall, so the clock is ticking to figure out the most efficient expenditures, even as many officials remain immersed in day-to-day crisis management. With all those green stimulus pitches being made this spring, the government at least has a running start at identifying options. It’s also possible for outsiders to begin distilling and scrutinizing several broad measures advocated by environmentalists that have got traction so far in Ottawa.
What could Canada do with green stimulus?
DECARBONIZING HOMES AND WORKPLACES
Of all possible forms of spending, the one now advocated most consistently by green-stimulus proponents is renovating residential, commercial and public buildings to reduce fossil fuel use for heating, improve energy efficiency and safeguard against climate-influenced risks such as flooding.
Investments such as installation of heat pumps to reduce natural gas use, and thermal retrofits to improve insulation, win quick checkmarks. They would quickly put people to work, be popular with broad swaths of the population, and would likely lower monthly costs and raise property values. They would also tangibly reduce Canada’s greenhouse gas emissions, about 13 per cent of which currently come from buildings.
When previous governments have rolled out green renovation programs, such as Stephen Harper’s Conservatives after the 2008-09 recession, they have usually been through tax credits and other incentives spread widely but thinly. The current proposals mostly involve direct government spending, through mechanisms such as grants and loans, on the premise that it would lead to more renovations that would not happen otherwise.
It would not be cheap. In one of several green-recovery white papers that climate policy analysts Ralph Torrie and Céline Bak have written recently, they call for $20-billion to “deep retrofit” more than 300,000 houses and 8,000 apartment buildings, and $6-billion to retrofit 23 million square metres of workplaces, plus additional backstopping of loans and mortgages through the Canadian Mortgage and Housing Corporation.
Even with very direct spending, there could still be some inefficiency – although probably not as much as with tax credits – by subsidizing improvements by homeowners or businesses who could otherwise afford them.
But the argument is that, in addition long-term benefits for the buildings improved, the investments would create economies of scale as more projects followed. In keeping with the economic competitiveness theme likely to run through Ottawa’s green relief package, advocates say a burgeoning retrofit industry could provide export opportunities for both Canadian-made products, such as heat pumps, and our expertise.
ACCELERATING THE SWITCH TO EVs
Environmentalists and auto-industry insiders alike predict that it’s only a matter of time before most Canadian drivers switch from gasoline-powered cars and trucks to EVs. But three major factors have slowed that transition, leaving EVs with a tiny share of the market: prices relative to internal combustion engine (ICE) vehicles, the limited variety of EVs currently available and concern about charging logistics.
The latter is emerging as a popular target for “shovel-ready” stimulus. Ottawa already provides up to 50 per cent of funding for installation of charging stations, including in public places and multiresidential buildings, and is being encouraged to expedite and broaden that spending.
Addressing cost and availability is more challenging, especially during an economic crisis when low oil prices make traditional vehicles more affordable. Manufacturers may reduce investment in new lines, and any new government regulation could be portrayed as too burdensome. But environmentalists point to potential carrots Ottawa could dangle if it’s avoiding sticks.
Ben Sharpe, who handles Canadian policy for the U.S.-based International Council on Clean Transportation, suggests that “scrappage" programs, in which drivers who take old gas-guzzling ICE vehicles off the road receive government-funded discounts on EVs (atop existing federal rebates of up to $5,000), are “what you’re going to get the most buy-in for, from the largest number of stakeholders.”
Another proposal is to help turn over many vehicles at once by offering generous EV rebates to purchasers of fleets, such as ride-share and delivery companies.
If such measures work, the environmental case for them is strong, because road transportation is second only to oil-and-gas extraction as a source of Canadian emissions. The economic competitiveness case is that increased demand could attract EV manufacturing to Canada, although even some advocates concede that’s a long shot in the near term.
ELECTRIFYING PUBLIC TRANSIT
Mr. Trudeau’s government will undoubtedly face calls to boost its investment in building new public transit lines, but such spending is often slow to get out the door because of intergovernmental wrangling. It is also complicated by uncertainty about whether the prolonged stay-at-home period will permanently alter commuting patterns.
That helps explain why there seems to be more lobbying for transit electrification than for expansion. In particular, there is a push under way for the Liberals to fast-track a vague previous commitment to help municipalities and school boards purchase 5,000 electric buses.
A caveat, offered even by some environmentalists, is that such an investment would have limited impact on Canada’s total emissions. But Merran Smith, who is executive director of the B.C.-based Clean Energy Canada and sits (along with Mr. Elgie, Mr. Lourie and others) on a multi-institute “Task Force for a Resilient Recovery” being launched this week, contends it would “kickstart the industry and bring down the cost,” with several Canadian electric-bus manufacturers ready to capitalize.
COVERING COMPANIES’ CLIMATE COSTS
This option seems to be coming mostly from inside the government.
Asked recently about whether Mr. Trudeau would ease up on plans for new climate-related regulation of businesses as they struggle to survive, a senior official (granted anonymity because he was not authorized to speak on the government’s behalf) suggested Ottawa could instead press forward with new requirements while providing financial support to help industries meet them.
The official pointed to the inclusion of funding for methane reduction, required by new federal and provincial standards, in the oil sands aid package announced last month. Similar funding could help companies comply with other regulations, such as the new Clean Fuel Standard or industrial carbon pricing.
Such spending could open Ottawa up to criticism that it is turning large businesses into climate free-riders. But it is one way the Liberals could throw companies lifelines, including by helping domestic oil-and-gas companies better compete environmentally with foreign counterparts, without being accused of undermining the government’s climate goals.
PLACING CLEAN TECH BETS
To the extent that Ottawa currently provides access to capital for clean technology development and scale-up, through entities such as Sustainable Development and Technology Canada and the Business Development Bank of Canada, it mostly does so in a broad-based way that does not favour some clean-tech sectors over others.
But there is now a potentially controversial push underway to get government to focus on particular technologies which could offer Canada a competitive advantage in the post-COVID-19 world, including helping hard-hit Alberta leverage its oil sands infrastructure and expertise toward more sustainable industries.
“There always is this temptation to spread the peanut butter too thin,” says Steve MacDonald, chief executive officer of the provincial clean-tech agency Emissions Reduction Alberta. “You’re going to have to make some choices.”
The most frequently cited target for such a boost is hydrogen, which can be extracted from the oil sands, and is seen as the potential future for heavy industrial transportation (e.g. trucks) for which electrification may be impractical. Last week, hydrogen got a push from the launch of a task force – organized by the Transition Accelerator, a business-oriented climate organization, and featuring a group of Alberta mayors – that advocates turning the industrial area around Edmonton into a beachhead for hydrogen use.
Transition Accelerator CEO Dan Wicklum says that if governments invest in hydrogen infrastructure in the region, such as fuelling stations, it could help establish enough demand to encourage nationwide scale-up and exports.
If government tries to pick sectoral winners, other buzzy options such as geothermal energy, and carbon capture and storage also offer potential competitive advantages.
Such targeted clean-tech investments always provoke philosophical debates about whether governments should embrace that degree of intervention. And a practical concern is whether there is enough time or data before a stimulus rollout to properly identify appropriate industries and strategies for them.
GETTING CLEAN ELECTRICITY WHERE IT’S NEEDED
Among the longer-term plays currently being advocated is to invest in getting zero-emissions electricity to every province. While a few provinces (Alberta, Saskatchewan and Nova Scotia) still rely heavily on fossil fuels for power generation, the national system as a whole is currently clean enough that it is not a pressing challenge. But Ontario might change that equation if it increases its natural gas generation to replace old nuclear reactors.
Clean-energy advocates also contend that as Canada aims to decarbonize transportation, home heating and industry through electrification, it will need much more zero-emissions electricity to maximize environmental benefit.
In another white paper, Mr. Torrie and Ms. Bak argue that, in addition to continuing to help build renewable (wind, solar and hydro) capacity, governments should invest in transmission infrastructure to get zero-emissions electricity where it is needed. That would include building interprovincial connections to better distribute clean power from provinces where it’s in surplus (Quebec, Manitoba and British Columbia) to neighbouring ones.
The complexities, including bringing together provincial governments and utilities, could make that an unlikely stimulus strategy if speed is a priority. But one aspect that could appeal to the Liberals is that interconnections between provincial grids are an area of focus for the Infrastructure Bank, and they want to see it play a bigger role under its new management.
PREPARING FOR POSTPANDEMIC LIFESTYLES
Unwelcome as the physical-distancing experience may be for most Canadians, environmentalists hope it will lead to lasting behavioural changes that reduce carbon footprints, such as less commuting to work and more appreciation of green space and being outdoors.
Their wish, as Climate Action Network executive director Catherine Abreu puts it, is for governments to “find ways to make those choices more convenient, so it doesn’t feel like people are being harangued into them.”
Much of this comes down to a reimagining of cities better left to other levels of government, but Ottawa could play a role through stimulus. One approach would be to provide funding to municipalities, which already want more federal aid to deal with COVID-related cash crunches, for projects such as bike lanes and pedestrian ways. Another would be investing in improved broadband access which, in addition to other benefits, could facilitate more telecommuting.
An obvious obstacle, for now at least, is that it requires much guesswork about what Canadians’ mindsets will be as they emerge from the pandemic.
That’s a challenge with most ideas for stimulus spending. It’s especially so when it relates so much to individual choices about whether to try to return to life as it existed before, or embrace a more climate-friendly new normal.
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